The Ascent of Money

A couple of hours ago I did something amazing: bought lunch. I walked about a kilometre down the road, straight into my favourite Thai restaurant, and got myself some fried rice. Now, you’re probably questioning my sanity, or at the very least pondering how amazing my story is. But it is amazing. In exchange for a colourful piece of paper, the wonderful lady behind the counter put down her newspaper, and through a mixture of skill and fresh ingredients made me a tasty meal. How did it get that way? Why does a piece of paper imbue sufficient power to drive human action? This, my friend, is the story of money. It’s the story of innovation. And it’s an incredibly fascinating story.

“Credit and debt, in short, are among the essential building blocks of economic development, as vital to creating the wealth of nations as mining, manufacturing or mobile telephony.”

Where to begin? Written on the cusp of the Global Financial Crisis, Niall Ferguson starts his tale with a rumination on what exactly money is — silver, paper, pixels on a screen. The root of all evil, the cause of our discontent, and the key to our success. Money is and has been all of these things. But these are not what make money, well, money. Money is a unit of exchange, a unit of account and a store of value. These are the real essences of money, not the whiff of Gold or the declaration of a sovereign. And it’s the story of money’s transformation through all of these stages, to hit all these targets, that makes up the bulk of the pages.

“From ancient Mesopotamia to present-day China, in short, the ascent of money has been one of the driving forces behind human progress: a complex process of innovation, intermediation and integration that has been as vital as the advance of science or the spread of law in mankind’s escape from the drudgery of subsistence agriculture and the misery of the Malthusian trap.”

The most interesting component of the book, however, are the ancillary tales of these great leaps. The clay tablets from 2000BC Mesopotamia, which turn out to be a form tradable debt — thousands of years before the first bond markets. The Spanish looting of an Incan civilisation thoroughly unaware silver’s status in the West, and the long term affects on Spanish Competitiveness. The rise of the Stockmarket in Amsterdam, which fuelled the long arm of the East India Companies. The spread of the “Cotton Bond” allowing the American South to stick around in a war with the North. The Scottish Clergymen who started an Insurance fund that invested the proceeds and paid the widowers and children of clergy out of the profits. And, finally, collateralised debt obligations, sub prime mortgages and the Global Financial Crisis.

“When we withdraw banknotes from automated telling machines, or invest portions of our monthly salaries in bonds and stocks, or insure our cars, or remortgage our homes, or renounce home bias in favour of emerging markets, we are entering into transactions with many historical antecedents.”

It’s with that last point that Ferguson really strikes home. The final parts of the book deal with the complexity of the modern financial system, and how it unravelled in the period leading up to publication. For while all these great innovations have built the world we now inhabit, they have also created one so complex that many simply give up. But we can’t. Giving up is what allows the likes of sub-prime loans to promulgate, and myriad mistakes be remade. Ferguson’s book is a partial answer to that. It’s nowhere near the silver bullet — for more sophisticated readers, there is much to be desired (Adam Smith seems to be particularly glossed over, for example), but it’s a great overview. And Ferguson’s passion for anecdote makes it particularly enjoyable. Three out of five.